Posted on 4 September '15 by , under General News.
While the ATO continues to crack down on its tax minimisation strategies, quite a few legal pathways to paying less tax while preserving wealth for retirement or estate planning purposes still exist.
Family trusts have significant tax-saving abilities, and can save high-income earners a fair amount of money over a few years by apportioning wealth to members in lower income brackets via a strategy called streaming.
Streaming income allows trustees to place a high proportion of the trust’s earnings into the names of their adult children (who are subjected to a lower marginal tax rate). Using the kids’ $18,200 tax-free threshold also means the investment income is not be taxed, and franking credits would are refunded. However, if children are below the age of 18, it may not to use this strategy since any investment income they earn above $416 attracts a much higher tax rate.
While streaming is a great option for minimising a family’s overall tax burden, it is not always a straightforward practice and may warrant professional advice. Here are two tips when using the family trust structure for tax purposes:
Take advantage of the tax-free thresholds: Make sure to take advantage of the $18,200 tax-free threshold if you have younger members in the trust, by transferring a higher allocation of the trust’s investment income to them.
Put capital gains and franking credits with low-income earners: Placing a higher proportion of profits to low-income earners can result in huge tax savings.